patrick.net

Year 2020 is 9 years from now. Too slow to get rich quick.

Recently, I read a book called "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market".

The book is written in 1999 and predicts that Dow 36,000 in a few years. In other words, Dow could reach 36,000 any day now.

If you buy Dow today at 12,000, you could make 3x money overnight.

Seriously, the tech stock in 1999, real estate in 2005, oil and gold in 2008 are all the same.
However, people will convince you that oil and gold are different this time.

What's the difference between printing money and stamping gold goins with a cheap metal center? Nothing but name. They both increase the money supply. That's it. And they're both theft.

Governments from Rome on up have been running the same scam for centuries.

Anything over $300 is a bubble, for Gold

Either gold is in a major bubble, or it was devalued for quarter of a century.

The arguments and counterarguments for gold are:

1. The increase in the price of gold is due to inflation. It’s not that gold is rising in real dollars; it’s that the dollar is being debased.

This is partially true, but also false. Gold has been rising in terms of real dollars. Compare the price of gold in dollars vs the price of silver, copper, coltan, zinc, etc. in dollars over time. Gold has been rising faster. Compare the price of gold in silver, copper, etc. and gold is still rising. This means that inflation, the increase in the money supply, is not the sole or even dominate cause of the rise in gold prices.

2. Gold retains its value over time.

Also partially true, but also false. Gold has historically fluctuated greatly in price as it has been manipulated by major buyer/sellers. All the gold that has ever been mined is approximated to fit in a cube measuring 82 feet per side. That’s a pittance to the amount of silver, copper, corn, steel, etc. produced. Being such a small market, gold prices can be easily manipulated or driven up by a bubble.

3. Gold prices cannot fall as long as countries like the U.S. continue to debase their currencies.

Not true. The nominal price of gold could plummet even during a high inflationary period if the price of gold has previously outpaced inflation, which it has for the past 6 years or more. The price of gold in real, not nominal, dollars is just as likely to fall during inflation as deflation. The real value of gold can be measured relative to other commodities like cars, airplane tickets, silver, etc.

4. The price of gold today reflects an increase in its value due to it being used or the expectation that it will be used as an alternative to fiat currency. There is a “money” premium added to the value of gold when it is used as money.

Peter Schiff makes this argument in his book Crash Proof. It’s possible he’s correct on this one. However, any such premium would vanish if the expectation of gold as a currency diminishes.

Also, there is one argument against gold that is often overlooked. Regardless of how much merit the increase in gold’s price over the past decade is, even if it’s fully justified, the fact remains that there is an inherit feedback systems built into human economics. Whenever the price of a commodity increases greatly over a period of time, speculators expect the price increases to continue; so the speculators buy the commodity in bulk, which causes the price of that commodity to increase; wash and repeat.

This positive feedback system ensures that if gold isn’t in a bubble, yet. It will be, and consequentially, there will be a crash as well. Just because we can’t time the crash closely enough to profit from it, doesn’t mean the crash won’t happen.

DAN8267,
Name one asset besides Cash that Central Banks around the World own substantial amounts of.......Gold
Here is the Report from the US Treasury
http://www.fms.treas.gov/gold/current.html
IMF Bank - Holdings of Gold
http://www.imf.org/external/pubs/ft/ar/2010/eng/pdf/webbox51.pdf

This past year Central Banks were Net Buyers of Gold Bullion.

There will be a point in time that it makes sense to move from Gold into other Assets.
As long as our Federal Reserve maintains artificially low Interest Rates and is forcing additional Cash into Banks - Gold will maintain its value and rise.

How long have you had expertise in Bubbles? I prefer to read commentary by people like Eric Janszen at iTulip.com - who as been accurately calling Bubbles since 1998.

I like the post by Dan8267. But I think maybe we should make a distinction between gold and other asset bubbles. Maybe the differences are subtle, maybe you don't believe they are different.
The reason gold is not such a bubble is it's bought mostly with cash, not credit. The house bubble was fueled by easy credit. In 1929, margin rates on stock trades were much more liberal than today (which are regulated by the Fed).
If I had a much higher net worth, I would buy some physical gold ETFs or gold coins that were not rare nor cost more than their weight in gold.
But, you could accomplish the same thing by owning a bank account in Swiss Francs probably also.
One friend of mine has nagged me over and over that stocks stink, and I am a fool to have stock mutual funds. I asked him once "what is the dividend paid by gold?" He thought I was a nut.
I think gold is for preserving your purchasing power, preserving capital. But, since I am not so rich yet, I want to get either interest or dividends from my extra money, and hope for capital appreciation also before I am an old geezer.
If I had a lot of gold, I would wonder when it was time to sell it. But I don't think it's going to collapse since they can't make it very quickly.

Kitco under Fraud investigation.

Kitco Metals Inc., a prominent Montreal gold dealer cited by Revenue Quebec as involved in a major tax fraud in the gold-trading sector, denies any wrongdoing.

In a statement, the company said it has never participated in any tax fraud, nor has it ever carried out any fictitious transactions, and it will "vigorously contest all aspects of the Revenue Quebec investigation."

The company won court approval to appoint an interim receiver, RSM Richter, to help it deal with the allegations. Its daily operations are continuing as they normally do, company spokesperson Sharlene Dozois said.

"(We appointed the receiver) to protect the interest of everyone and have someone work with us through the process," Dozois said. "We did that voluntarily."

Kitco said it buys precious metals scrap and pays the suppliers sales tax on the purchases, for which it gets a credit. It's the responsibility of the suppliers to remit the sales tax to Revenue Quebec, Kitco said, and if they don't, it should not be held accountable.

Kitco said it has "respected all applicable laws and bylaws since the founding of the company over 30 years ago."

Revenue Quebec investigators and police conducted searches and seizures at 70 locations on and around the island of Montreal this week to break up what they allege was a major tax-fraud scheme that cost taxpayers more than $150 million and involved as many as 125 companies.

Read more: http://www.montrealgazette.com/news/Kitco+denies+fraud/4929975/story.html#ixzz1P0TzAwDM

We shall see what we shall see. Kitco's gold is unallocated, meaning it's fair game when the Canadian Tax Authorities are looking to seize assets.

Physical or allocated and audited accounts people. The less you have, the more physical it should be. And diversify, just like you would do with cash - when you have a lot, you're nuts to keep it all in one bank.

I should point out the Jon Nadler, Kitco's founder and President, is not a perma-gold bug type; he's actually been warning about a correction for quite a while now.

Tenouncetrout says

Anything over $300 is a bubble, for Gold

lol, you say this as your bank balance is continuously getting eroded in purchasing power through the insane monetary policies. You have to be blind to make such a statement.

Dan8267 says

This positive feedback system ensures that if gold isn’t in a bubble, yet. It will be, and consequentially, there will be a crash as well. Just because we can’t time the crash closely enough to profit from it, doesn’t mean the crash won’t happen.

Dan,

Overall your points are convincing, but at the end of the day -- we need
to ask some hard questions: how much faith does the public have on the fiat currency? how long can these fiat currency regimes last, when the tower of debt is insurmountable? when people cannot put food on the table for their families, what happens? (e.g., Greece, Egypt etc.)

I think the rise of gold answers these questions. Rise of gold is not really a happy news, because it rises only when there is too much market uncertainty.

Nevertheless, it can enter a bubble phase. I think we're years away from it. Sure, there will be hard corrections, but I think the direction is up for a significant period of time.

Mike Maloney has these Wealth Cycles videos that I find interesting. Essentially, we need to jump to the assets that will be undervalued when there is a bubble in gold/silver.

I just received an email from eBay today touting the opening of the new Bullion Center - a contrarian indicator??

Dan8267 says

The real value of gold can be measured relative to other commodities like cars, airplane tickets, silver, etc.

That's exactly true and I have posted some charts on my blog pertaining to this point:

http://libertyingold.blogspot.com/2011/06/measuring-wealth-effect.html

I think we can see median house prices correct even further than 100 ounces, may be to 70 ounces are so. Markets are prone to overcorrect.

Nomograph says

That’s not what inflation is. I’ll leave it as an exercise for you to find out what inflation actually is.

(HINT: There can be inflation with ZERO increase in money supply)

Really? Are you going to tell me that inflation is general rise in prices?

If printing money solves everything, why doesn't the government just print and give everyone a million dollars? In fact, why does the government even need the extra step of taxing? It could just create the revenue out of thin air.

For that matter, why should we work to pay for anything? We could print the money to pay our bills. People sure would spend a lot. That would stimulate the economy. No one would need to hoard at all. Who cares how high the prices go, there is plenty of money. (Sound like some governments you know?) Brilliant.

Zimbabwe would be the wealthiest country on earth if printing solved all the problems.

I mean, at some point printing money doesn't work. And it appears to me that no one knows where it is. They just say, "We haven't printed enough yet."

Debt-free Renter says

If printing money solves everything

Nice try. Nobody thinks printing money solves everything. Unfortunately, there is no panacea to the mess we're in. But it would help fix some of the problems:

1. weaker dollar attracts more jobs to US
2. if done correctly, printing can reduce wealth disparity
3. reduce the impact of our foreign debt

The disadvantage is that is most likely would cuase an increase in prices in the US. There is no free lunch.

austrian_man says

Idiot

austrian_man says

You moron

austrian_man says

you are a complete doofus

Sounds like Austrian Man is about to bid adieu. When the name calling starts, that means the end is typically near...

tatupu70 says

austrian_man says

Idiot

austrian_man says

You moron

austrian_man says

you are a complete doofus

Sounds like Austrian Man is about to bid adieu. When the name calling starts, that means the end is typically near…

haha...still here. it does get tiring after a while because the person on the other side of the conversation is blind to see my pov..instead he is focused on attacking Austrian Economics itself because he does not believe in free market.

He thinks free market exists today and its bad. I agree that its bad and I'm saying its not free market, its rigged market capitalism. thats the difference.

tatupu70 says

1. weaker dollar attracts more jobs to US
2. if done correctly, printing can reduce wealth disparity
3. reduce the impact of our foreign debt

You cannot possibly believe that we can inflate our way out of $14.3 trillion and still ever increasing perpetual debt..The system will crack before that...simple reason...foreign creditors are not idiots

Austrian_man,

I'm in complete agreement with you.....
and more importantly Marc Faber, Eric Janszen (itulip), Bill Fleckenstein, Jim Grant, David Stockman........

But, you cannot change the views/perspective of others.

Best of Luck.

RealisticOptimist says

. I think he’s referring to using that money to invest in projects that would put people to work. An example would be the hoover damn in the Great Depression. You had tons of people willing to work, and sh*t that needed to be done.

There's a fallacy in this way of thinking. Government spending money is not free lunch, the bill always ends up with the tax payer. I'll suggest you read the chapter "Public works mean Taxes" in the book, Economics in one lesson by Henry Hazlitt. Any task undertaken for the goal of putting people back to work is inefficient. I'm not saying all government tasks are inefficient, but any federal program meant to create employment does not work in the long run.

Underdark says

The only thing that has kept America afloat during this spending binge by Americans and the government is the dollar’s designation as the reserve currency. One day many of those dollars will no longer be needed by foreigners and will come home. When this happens, even the most dire prediction by Apocalysfuck will be mild in comparison.

Underdark, I'm in complete agreement with you on this one.

For anyone who believes that we can inflate our way out of our infinitely huge debt problems, there's one quote by Ludwig Von Mises that has stood the test of time, remains true to this very day:

"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."

Funny you haven't replied to my other arguments on the effects of money not being free.....ignorance continues.

PersainCAT says

HOWEVER where the you and austrian_man are differing right now, is whether or not its a good idea to spend all the money now in hopes of recouping it later.

He is basically saying the country is to in debt to spend like crazy and drive the economy into success becasue we simply CANNOT recoup that money later when u consider our current debts.

yes exactly, I'm advocating austerity and liquidation of bad debt. That means a housing price collapse (gravitate to the bottom) and wide bank failures. This will show how weak the current monetary system really is.

there are no good options at the moment.

Jim Grant debates and explains negative impacts of Quantitative Easing (Money Printing)
http://online.wsj.com/video/delong-vs-grant-is-qe3-a-lifeboat-or-torpedo/0D7BB646-82DF-4F18-A571-8937D35A14A8.html

Jim Grant believes that we will see a gold standard in our lifetimes. I believe we will.

http://finance.yahoo.com/news/Once-bullish-contrarian-Jim-apf-265701620.html?x=0&sec=topStories&pos=5&asset=&ccode=#mwpphu-container

Tthis statement of his is brilliant:

"Gold is a very difficult investment because its value is indeterminate. It is the reciprocal of the world's confidence in the likes of Ben Bernanke. I think the price will go higher."

Why do you want a stronger dollar? That will just send more jobs overseas. If you want US manufacturing back, then you should be arguing for a weaker dollar. Which is another reason why printing money makes sense under the current conditions.

tatupu70 says

Why do you want a stronger dollar?

Simple, I'm a saver...not a borrower...a stronger dollar benefits me. Moreover a stronger dollar means that we are trying to liquidate bad debt, there will a lot of short term pain. Nevertheless, in the long run that's a better option than debasing the currency.

tatupu70 says

That will just send more jobs overseas.

That is a silly, absurd assertion. More jobs will come here, if foreigners believe we have a strong currency and have the ability to pay our debts. I don't think we can pay our debts, which is why we are desperately trying to inflate. It is not working though!...

tatupu70 says

If you want US manufacturing back, then you should be arguing for a weaker dollar.

The problem lies with the financial sector which has gotten too big and eroded the manufacturing sector's capital. If you want US manufacturing back, we need a sound monetary system that limits our ability to borrow...which is what we had prior to 1971.

tatupu70 says

Which is another reason why printing money makes sense under the current conditions.

Printing money never makes sense. If it did, you wouldn't have seen failures like Weimar Germany, Argentina, Chile, Zimbabwe...

austrian_man says

Printing money never makes sense. If it did, you wouldn’t have seen failures like Weimar Germany, Argentina, Chile, Zimbabwe…

Chile and Argentina failed because they tried to keep their currencies artificially strong by pegging them to the dollar... which they could not sustain.

thunderlips11 says

austrian_man says

Printing money never makes sense. If it did, you wouldn’t have seen failures like Weimar Germany, Argentina, Chile, Zimbabwe…

Chile and Argentina failed because they tried to keep their currencies artificially strong by pegging them to the dollar… which they could not sustain.

What time frames are we talking about here? Chile: 1970-73. Here's a personal account of that hyperinflation: http://gonzalolira.blogspot.com/2010/08/hyperinflation-part-ii-what-it-will.html

Argentina 1975-1991: After the death of Juan Peron.

All countries have to peg their currencies to the US Dollar, because they all hold dollar surpluses. As a result when the US injects more liquidity in the system, they all print more money as well because everyone strives for exchange rate stability.

In a fiat currency system, where your currency is not the world reserve currency -- there are only two choices: domestic price stability or exchange rate stability. Everyone chooses the latter, which is why we see high inflation in emerging economies like China and India...

austrian_man says

Jim Grant believes that we will see a gold standard in our lifetimes. I believe we will.

I hope we will. A fiat currency has only encouraged government debt, asset bubbles, and absurd monetary policy.

austrian_man says

Argentina 1975-1991: After the death of Juan Peron.

Austrian, thought you were referring to the Corallito / Dollar peg fiscal policy fallout events of the early 2000s and Chile in the early-mid 80s.

Gonzo, like many of those who report on Chile's economic history, glosses over the massive inflation of the Pinochet area and looks only at the Allende regime.

Anti-Chavez Venezuelans do the same by mentioning rising inflation under Chavez, but fail to mention the higher, double-digit inflation under Chicago-Schooled Venezuelan Administrations in the 90s. They also fail to note the Chavez's inflation is happening in an expensive oil-environment and can be linked to the high price of oil; whereas the 90s inflation happened in a cheap oil environment.

austrian_man says

That is a silly, absurd assertion. More jobs will come here, if foreigners believe we have a strong currency and have the ability to pay our debts. I don’t think we can pay our debts, which is why we are desperately trying to inflate. It is not working though!…

Are you kidding me? You think corporations' move jobs overseas because they are worried whether the US will pay back its debt??? Talk about silly and absurd.

Jobs are offshored because labor is cheaper. Period. End of story.

austrian_man says

The problem lies with the financial sector which has gotten too big and eroded the manufacturing sector’s capital. If you want US manufacturing back, we need a sound monetary system that limits our ability to borrow…which is what we had prior to 1971.

Again--ridiculous. There is no shortage of capital. Plants are built--they are just built in other countries, not the US. Why do you think China is doing everything it can to keep their currency WEAK?? Because when their currency is weak, jobs move there. And they want those jobs.

austrian_man says

American history is not my strong suit

That much is obvious.

Fiat Money is too vulnerable to interests and economist's hubris.

Gold is the rich man's favorite store of value, too rare to work and too subject to supply/demand cycles.

Silver is a little more open and democratic, but still has some of Gold's problems, albeit on a smaller scale.

But why not think outside the box, and have a currency based on - Man Hours Worked?

http://hourmoney.org/

* Rewards Productivity
* Makes rentier and speculation-based incomes more difficult
* Encourages actual Development
* An easier metric for measuring someone's actual Contribution to Society. IE, is a Bankster CEO really worth hundreds of millions of manhours each year for his labor, but a nurse only a thousand or so?

tatupu70 says

Are you kidding me? You think corporations’ move jobs overseas because they are worried whether the US will pay back its debt??? Talk about silly and absurd.

Jobs are offshored because labor is cheaper. Period. End of story.

No, I agree with the fact that jobs were moved from US to China because labor was cheap there. What I'm saying is that for more jobs to get created in the US, the FIRE sector needs to stop dominating the economy and manufacturing/productive sector needs to take hold. FIRE is prospering because of cheap/unsound monetary system.

tatupu70 says

There is no shortage of capital. Plants are built–they are just built in other countries, not the US. Why do you think China is doing everything it can to keep their currency WEAK?? Because when their currency is weak, jobs move there. And they want those jobs.

The reason they are built in other countries is because their manufacturing sector is strong. Not because their currency is weak!

austrian_man says

What I’m saying is that for more jobs to get created in the US, the FIRE sector needs to stop dominating the economy and manufacturing/productive sector needs to take hold. FIRE is prospering because of cheap/unsound monetary system.

Another problem with a FIRE-based economy, is it is a nationalization away from collapse, as so much wealth comes from foreign investment and carries political risk.

(I'm thinking what China can do to contractors and subcontractors of US products, if the people riot over unemployment. Just look at how many people are still employed by Chinese SEOs there. When you don't have a welfare state, and 20% of people are unemployed...)

austrian_man says

The reason they are built in other countries is because their manufacturing sector is strong. Not because their currency is weak!

lol--that makes absolutely no sense. You just admitted that the jobs moved there because the labor costs are lower. Well, strong dollar = high labor costs. Weak dollar = lower labor costs.

tatupu70 says

You just admitted that the jobs moved there because the labor costs are lower. Well, strong dollar = high labor costs. Weak dollar = lower labor costs.

May be I should have worded it better. I think it is a vicious cycle in the sense that you lost manufacturing sector jobs and moved more to financial service sector jobs in the US, as a result the people's skill-set changes as well. This causes the transition back to manufacturing sector that much harder, because skilled labor is available somewhere else.

On an unsound monetary system (which our global system is), jobs move where labor costs are lower. But getting jobs is not free lunch. You also get high inflation with it. This is the case with China and India.

US has for a significant period of time, enjoyed low inflation primarily because the US dollar is the world reserve currency, everyone pegs their currency to the dollar. China and other countries holding US dollars do not want a weaker dollar so there is an inherent conflict.

Welcome to the currency wars of the 2010s.

This is what is called Triffin's dilemma.

US stands to lose its world reserve currency privilege if dollar debasing and uncontrolled government spending continues.

This video by Jim Rogers makes a good case of liquidation of bad debt.

austrian_man says

I think it is a vicious cycle in the sense that you lost manufacturing sector jobs and moved more to financial service sector jobs in the US, as a result the people’s skill-set changes as well. This causes the transition back to manufacturing sector that much harder, because skilled labor is available somewhere else.

So your theory is that jobs moved to China because there is more skilled labor available there?? Really?

tatupu70 says

So your theory is that jobs moved to China because there is more skilled labor available there?? Really?

Its not my theory, its a fact. If a private enterprise has invested capital to build infrastructure and develop human resources to perform the manufacturing skill elsewhere, why the hell would they move it back here? To lose all their capital and start over?

By weakening the currency, you are increasing the cost of raw materials to the company as well - thereby eating into its operating margin. So who benefits from this weakening of currency? The debtors, which in the case of United States -- there are a LOT of debtors and there is too much debt (public sector, private household).

Who stands to lose? pretty much everyone else...especially the foreign creditors holding US dollars.....and they know it very well...they are making their moves.

What will get some of these industries back to North America would be rising energy costs. Note this will happen inevitably. You don't have to weaken the currency.

Here's a link

But wage costs are no longer everything they were cranked up to be. In today’s world of soaring energy costs, power rationing and export taxes on key commodities such as wood, wage gaps are less important. When the power goes off, it suddenly doesn’t matter if your labor is expensive.